Directors’ responsibilities

Becoming a director carries with it potentially onerous duties. Make sure you know what those duties are. If you are located in the Harrogate area we, at Stringer Mallard, can provide professional advice to help you fulfil your duties and obligations.

The position of director brings both rewards and responsibilities upon an individual.

Whether you are appointed to the Board of the company you work for or you are involved in establishing a new business and take on the role of director you will feel a sense of achievement.

However the office of director should not be accepted lightly. It carries with it a number of duties and responsibilities. We summarise these complex provisions below.

Companies

You can undertake business in the UK as either:

an unincorporated entity, i.e. a sole trader or a partnership or

an incorporated body.

An incorporated business is normally referred to as a company. Although there are limited liability partnerships and unlimited companies the vast majority of companies are limited by shares. This means the liability of shareholders is limited to the value of their share capital (including any unpaid).

A limited company can be a private or public company. A public company must include 'public' or 'plc' in its name and can offer shares to the public.

The responsibilities and penalties for non compliance of duties are more onerous if you are a director of a public company.

Directors

When you are appointed a director of a company you become an officer with extensive legal responsibilities. For a director of an incorporated body, the Companies Act 2006 sets out a statement of your general duties. This statement codifies the existing ‘common law’ rules and equitable principles relating to the obligations of company directors that have developed over time. Common law had focused on the interests of shareholders. The Companies Act 2006 highlights the connection between what constitutes the good of your company and a consideration of its wider corporate social responsibilities.

The legislation requires that directors act in the interests of their company and not in the interests of any other parties (including shareholders). Even sole director/shareholder companies must consider the implications by not putting their own interests above those of the company.

The aim of the codification of directors’ duties in the Companies Act 2006 is to make the law more consistent and accessible.

The Act outlines seven statutory directors' duties,
which also need to be considered for shadow directors. These are detailed below.

Duty to act within their powers

As a company director, you must act only in accordance with the company’s constitution, and must only exercise your powers for the purposes for which they were conferred.

Duty to promote the success of the company

You must act in such a way that you feel would be most likely to promote the success of the company (i.e. its long-term increase in value), for the benefit of its members as a whole. This is often called the ‘enlightened shareholder value’ duty. However, you must also consider a number of other factors, including:

the likely long-term consequences of any decision

the interests of company employees

fostering the company's business relationships with suppliers, customers and others

the impact of operations on the community and environment

maintaining a reputation for high standards of business conduct

the need to act fairly as between members of the company.

Duty to exercise independent judgment

You have an obligation to exercise independent judgment. This duty is not infringed by acting in accordance with an agreement entered into by the company which restricts the future exercise of discretion by its directors, or by acting in a way which is authorised by the company’s constitution.

Duty to exercise reasonable care, skill and diligence

This duty codifies the common law rule of duty of care and skill, and imposes both ‘subjective’ and ‘objective’ standards. You must exercise reasonable care, skill and diligence using your own general knowledge, skill and experience (subjective), together with the care, skill and diligence which may reasonably be expected of a person who is carrying out the functions of a director (objective). So a director with significant experience must exercise the appropriate level of diligence in executing their duties, in line with their higher level of expertise.

Duty to avoid conflicts of interest

This dictates that, as a director, you must avoid a situation in which you have, or may have, a direct or indirect interest which conflicts, or could conflict, with the interests of the company.

This duty applies in particular to a transaction entered into between you and a third party, in relation to the exploitation of any property, information or opportunity. It does not apply to a conflict of interest which arises in relation to a transaction or arrangement with the company itself.

This clarifies the previous conflict of interest provisions, and makes it easier for directors to enter into transactions with third parties by allowing directors not subject to any conflict on the board to authorise them, as long as certain requirements are met.

Duty not to accept benefits from third parties

Building on the established principle that you must not make a secret profit as a result of being a director, this duty states that you must not accept any benefit from a third party (whether monetary or otherwise) which has been conferred because of the fact that you are a director, or as a consequence of taking, or not taking, a particular action as a director.

This duty applies unless the acceptance of the benefit cannot reasonably be regarded as likely to give rise to a conflict of interest.

Duty to declare interest in a proposed transaction or arrangement

Any company director who has either a direct or an indirect interest in a proposed transaction or arrangement with the company must declare the ‘nature and extent’ of that interest to the other directors, before the company enters into the transaction or arrangement. A further declaration is required if this information later proves to be, or becomes either incomplete or inaccurate.

The requirement to make a disclosure also applies where directors 'ought reasonably to be aware' of any such conflicting interest.

However, the requirement does not apply where the interest cannot reasonably be regarded as likely to give rise to a conflict of interest, or where other directors are already aware (or 'ought reasonably to be aware') of the interest.

Enforcement and penalties

The Companies Act states that they will be enforced in the same way as the Common Law, although under Company Law. As a result there are no penalties in the Companies Act 2006 for failing to undertake the above duties correctly.

Enforcement is via an action against the director for breach of duty. Currently such an action can only be brought by:

the company itself (i.e. the Board or the members in a general meeting) deciding to commence proceedings; or

a liquidator when the company is in liquidation.

an individual shareholder can take action against a director for breach of duty. This is known as a derivative action and can be taken for any act of omission (involving negligence), default or breach of duty or trust.

Where the company is controlled by the directors these actions are unlikely.

How we can help

You will now be aware that the position of director must not be accepted lightly.

the law is designed to penalise those who act irresponsibly or incompetently.

a director who acts honestly and conscientiously should have nothing to fear.

We can provide the professional advice you need to ensure you are in the latter category.

If you are located in the Harrogate area please contact us at Stringer Mallard if you would like more information on directors' responsibilities.

What our clients say

“ I use Stringer Mallard for several of my businesses and have found them to be a friendly, supportive and professional team that are happy to help.

The combined knowledge and experience within the team mean that my queries are always answered and I feel confident in the answers that they give. The services that they provide are tailored to me and my businesses rather than a ‘one size fits all’ approach. I have found them to be flexible and willing to work with me, providing valuable insights into my business. ”

Jason Clay - Director - Quarters Developments Ltd

“ I have used Stringer Mallard for many years and they have provided an outstanding quality service tailored to my business requirements. I would highly recommend them to anyone looking for an accountant who can explain things in plain English. I can discuss all my business matters with them and find their advice most helpful. They have played a leading role in the evolution of my businesses over the last few years. ”

Paul Walker - Managing Director - Auto VIP

“ We have used the services of Stringer Mallard for many years within our training business and have always found the service to be excellent! Stringer Mallard’s approach is extremely entrepreneurial and we have found their business advice to be invaluable. I would have no hesitation in recommending Stringer Mallard’s services and have indeed done so to many of my associates and friends. ”

Paul Hughes - Director - Hughes Training Solutions Ltd

“ We have been with Stringer Mallard for several years and they have a great team who have dealt with our financial affairs efficiently and professionally, whilst being very friendly and approachable. Andrew is always available to discuss our business and is a valuable source of impartial advice. ”

“ Working in the Financial Services arena ourselves, we need an Accountancy practice that not only understand the technical and legislative side of our industry but also appreciate the importance of the personal service side and building a relationship based on trust and sound advice. Stringer Mallard are able to provide all of this and at a price that is very competitive with the big high street firms! It’s a cliché but they really are big enough to cope but small enough to care. ”

Kirk James - Director - Lofthouse Gate

“ I have worked with Stringer Mallard for several years now and have found them to be professional, approachable and very knowledgeable. They are always on hand for any queries and have shown an interest in my business that I have not experienced elsewhere. I would have no hesitation in recommending Stringer Mallard to my friends and associates. ”

Nigel Coughlan - Director - COW Hold Ltd

“ I moved to Stringer Mallard several years ago, when I faced a challenging situation in my retail business. I found Andrew Stringer to have a level headed and optimistic and enthusiastic approach to my particular problem. He was connected well enough to arrange meetings that led to me being able to get back on track with renewed confidence. With a plan, support from a new bank and with Andrew’s very personal support to myself and my business, I was able to drive the business forward, which has since tripled in turnover and quadrupled in net profits. This in turn however attracted bigger tax liabilities. Stringer Mallard have a tax planning specialism. I would only work with a company and a scheme that operates both within the law and one that has an in depth and thorough understanding of tax law. ”

Jeremy Beaumont - Rhodes-Wood Ltd

“ We have employed the services of Stringer Mallard since 2004, Andrew and his team have helped Clean And Tidy expand our business with their professional and direct approach to our accountancy requirements. They have advised us on all aspects of our business and helped us with ideas and how to grow our business. It is very valuable to have someone there who you can call at anytime and get the right advice or be pointed in the right direction. They make things happen. We highly recommend the services of Stringer Mallard. ”

C A Tolmie - Director - Clean and Tidy

“ Stringer Mallard have been our accountants in the UK for 15 years and during that time they have been an important factor in the growth of our business. Funville started from nothing eight years ago and has grown every year since. Our relationship is simple; if we have a problem or a strategic decision to make, we call them and they are involved from start to finish. Their advice and input is simply invaluable and of great importance to us. ”

Stringer Mallard, Harrogate Accountants

We recognise that being in business, especially leading a business, can be an isolating experience. We are your business partner for all the decisions you have to make, genuinely assisting in bringing to life your goals and ambitions.